Professor’s Comments November 16, 2021
Posted by OMS at November 16th, 2021
The market was essentially flat yesterday. The Dow finished down 13 points, closing at 36,087. The NASDAQ and S&P were down 7 and 0.05 points, respectively. Volume on the NYSE was low, coming in at 90 percent of its 10-day moving average. There were 165 new highs and 44 new lows.
Yesterday’s early rally to 36,236 on the Dow was consistent with a retracement wave 2 pattern preciously discussed in the WSR. If this is the case, yesterday afternoon’s decline could have been the start of a wave 3 down. We should know more if the decline continues today. The thing to watch now is Friday’s low of 35,915. That’s because this low is also the right shoulder of a small Head & Shoulders Pattern that is easily seen on the hourly chart. The left shoulder is the low that occurred on 3 November. So, a line drawn between these two lows now forms the neckline on a major reversal pattern. It MUST be respected.
The other thing that students should note is the decreasing volume, depicted by the VZO and my new volume indicator. The VZO has turned negative, and my new confirming volume and momentum indicators are now just barely above their zero lines. These indicators have been positive since the current rally started on 15 October. If they turn negative now, at the same time a Head & Shoulders Reversal Pattern is forming, it could lead to a significant decline in the markets.
There were NO CHANGES to the Market Timing Indicators last night.
The Market Timing Indicators for the Dow (DIA), S&P (SPY), and NASDAQ (QQQ) remain Positive.
The Scalp Trading Indicators for the Dow (DIA), S&P (SPY), and NASDAQ (QQQ) are also Positive.
The Dean’s List is still Positive. The Tide remains Neutral.
The Sector Ratio remained at 19-5 Positive after yesterday’s session. The top five strong sectors were Service (6), Autos (6), Semiconductors (6), Retail (4), and Energy (4).
The top five weak sectors were Media (-1), Telecoms (-1), PharmaBio (-1), Utilities (0), and Insurance (0).
Top Stocks: Last week, most of my Comments were focused on the rocket ship ride that #1 stock, Marathon Digital (MARA), was making. I used comments like ‘nosebleed territory’ and my standard phrase of “NO stock, no matter how good goes to heaven” to describe my concern. I also talked about how MARA exceeded its target …by about 20 points! So yesterday, when a Red Arrow appeared on the first bar of all the charts I trade (the arrow did not appear on the Weekly Chart), it was obviously time to kiss MARA good bye. Good thing, as the stock continued to decline all day, finishing 20.52 points lower at 54.4. Now aren’t you glad that you had the arrows? If you want to see something really interesting, just take a quick look at a 60 min chart of MARA.
You can start with MARA’s breakout from its wave 4 triangle that occurred on 1 November at the 53 level. After that, the stock made a five wave rally for wave 5 up into its top of 83.4 on 9 November. Then once the top was in, it made a three-wave a-b-c decline into yesterday’s low. In other words, so far, MARA’s rise, and recent decline appear to be normal, healthy breathing. Yeah, I know that yesterday’s decline was a lot of points, but so was the rise from the wave 4 breakout. I don’t think that MARA’s decline is over, as support from the extended wave 4 trendline comes in slightly below the 50 level. If the 50 level holds, there could be a ‘bounce’ trade in the cards. We’ll just have to see. But so far, everything I see about MARA and the other cryptos is still normal healthy breathing. The stock was EXTREMELY overbought and now, especially if it drops to 50, will become EXTREMELY oversold. This is why I will be watching for a Green Arrow on any of the shorter-term bars in the next day or so.
BTW, yesterday’s decline in MARA was triggered by two things: The first was an announcement that it would be selling $500 million in convertible securities. This in itself is not bad, as the reason cited was, they needed more money to buy even more computers to mine cryptos. However, the second part of the announcement was a bit more concerning. It appears the company received a subpoena from the SEC related to a partnership for a Montana data facility. The SEC is investigating whether any securities laws were violated when they formed a joint venture with Beowulf Energy in October 2020. The company could get fined if there was any wrong doing, but I do not believe it will impact its longer term results. Anyhow, whatever happens, the SEC investigation will likely put the company under a cloud for the immediate future. But since I only use MARA as a trading vehicle, I’m not too concerned about clouds…I’m just looking for a Green Arrow on an oversold stock.
The rest of the cryptos did fine yesterday. GBTC, ETHE, and RIOT all pulled back, but it still looks like healthy breathing after a significant run up. For example, RIOT’s pull back of 2.1 points to 42.09 occurred after a rally from 27 to 46+. That’s a pretty big rally. And even strong stocks need a rest before moving higher. Watch to see how the shape of the pullback. If it’s a jagged, a-b-c affair, that’s good. It means that the pullback is corrective. It also means that there could be a great buying opportunity developing once the pullback completes. Start watching for Green Arrows.
I’m also watching for RED Arrows on the 120 min bars of all the indexes today. I’m especially watching for a RED Arrow on IWM. The blade of an inverse Hockey Stick Pattern continues to develop on the 120s on IWM and the indicators are negative. If I see a Red Arrow appear, I’ll buy a small trial position in TZA, a 3X inverse leveraged ETF for the Russell 2K. I believe that higher interest rates, inflation, parts and labor shortages, government policies, higher energy costs and other negatives will affect small business the most. So, I want to start building a position that will short the RUT and its surrogate ETF, IWM. My intermediate target for IWM is near the 210 level. Beyond that its 140. IF 140 doesn’t hold, look out…its 100 or lower. Let’s all hope this doesn’t happen, because IF 210 is broken, it’s likely the country is heading for a major recession / depression. A close below 209, the 19 July low, would also confirm that the Bear Market is underway.
That’s what I’m doing.
h
Did I tell ya to pay attention to the Arrows today? If not, please pay attention to any Red Arrows on the indexes and watch Friday’s low of 35,915 on the Dow. The indicators on the 120 min chart on the Dow are close to turning negative. Position Trade?
Market Signals for
11-16-2021
DMI (DIA) | POS |
DMI (QQQ) | POS |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
Index | Signal | Signal Date |
---|---|---|
DOW | POS | 15 Oct 2021 |
NASDAQ | POS | 19 Oct 2021 |
GOLD | POS | 02 Nov 2021 |
U.S. DOLLAR | NEG | 08 Nov 2021 |
BONDS | NEU | 10 Nov 2021 |
CRUDE OIL | NEG | 11 Nov 2021 |
CRYPTO | NEU | 10 Nov 2021 |
Not sure of the terminology we use? Check out these articles
The Hockey Stick Pattern
The Creation of Waves and Trends
FAQ
All of the commentary expressed in this site and any attachments are opinions of the author, subject to change, and provided for educational purposes only. Nothing in this commentary or any attachments should be considered as trading advice. Trading any financial instrument is RISKY and may result in loss of capital including loss of principal. Past performance is not indicative of future results. Always understand the RISK before you trade.
Category: Professor's Comments